The Year of Rollups

I’ve always considered the Ethereum upgrade to be a multi-step process. EIP1559, on the surface, doesn’t seem to bring much to the table for the everyday user - however it deeply affected the miner economics, inviting a lot of debates (and protests). The beacon chain’s shift to PoS this October will mark the beginning of going from PoW to PoS, however there isn’t much discussion in the mainstream about this either. The users often care about big leaps in Engineering and Tokenomics, such as Bitcoin’s halving or Polkadot’s Parachain, and they expect Ethereum to have this same gargantuan leap where PoS, Sharding, Beacon Chain, EIP1559 all come together to form Ethereum 2.0. But this process is a step-by-step transition, like a Ship of Theseus, coming together to form the new Ethereum 2.0. Between this, there are short term solutions that fit snugly into the grander vision.

ship of theseus

There has been a trend where EVM-based sidechains have been outperforming Ethereum and the Rollup ecosystem in the past few months in terms of onboarding new users. Coming from a developing nation (India), this was a anecdotal shift, not just a statistical one. Friends aped into tokens such as Safemoon on the Binance Smart Chain - and this was an eye-opener. I realized most casual investors don’t care about conversations involving security, decentralization. And it makes sense, I personally don’t care about the departmental politics at Johnson and Johnson, I care if $JNJ helps me pay my rent. Casual investors wanted to have fun and make money.

To keep up with these well-shilled “Ethereum Killers” with EVM-compatibility - Ethereum rollups had to outperform them. And while I don’t have any personal qualms with Binance Smart Chain, it was obvious why it was performing so well. In my country, a UniSwap swap on Ethereum mainnet costs the same as about 50 Tacos (at the time of writing) from Taco Bell would cost you. Sure, these transactions will be cheaper on Optimism, the gas required to bridge from mainnet to Optimism is equal to rent for a family of 3 in a mid-tier city. Meanwhile Binance? You can send tokens from the Binance app for a trivial fee.

But in Q3 of this year, something interesting happened - the launch of UniSwap on Optimism bought about a bunch of liquidity from mainnet to optimistic rollups. This, and DyDx on Starknet nboarded users to the world of Rollups, the market was warming up to the idea of L2s - Gas had started to be a concern (as represented in the historical Gas data graph below, provided by Statista) and reputed names launched on these Rollups.

Such projects onboarding onto Rollups made me particularly bullish about the future of Ethereum scaling. Ethereum has the network effect and security in the space with which very few L1s can compete with. Any L1 in this space has to face the Blockchain Trilemma, and it’ll be interesting to see if an L1 is sufficiently decentralized, how far would it go as far as efficiency is concerned, would it fall victim to the Jevon’s paradox? Vitalik states “the internet of money should not cost 5 cents a transaction.” - but Ethereum has struggled with this too. Rollups are one of the most innovative L2 solutions, especially in a dapp-heavy ecosystem.

To me, Rollups and its mainstream adoption are the most exciting developments in 2021. They’ve been around since 2018 (from what I recall, Barry Whitehat’s that repo twas the World’s introduction to Rollups). L2s that don’t trade-off security and are scalable promise a bright future to me.